PACCAR A Battleground Between Strong Demand And Concerns About Margins And A Near-Term Peak

 

Cyclical stocks can be challenging in the best of the times, and forecasting gets especially interesting when established rules about the cycles appear to be changing. That’s the issue I see with PACCAR (PCAR) – the pandemic and supply shortages that started in 2021 have absolutely altered the normal trajectory of the heavy truck cycle, but so too may be the ongoing growth in e-commerce. On top of all that, while orders are looking healthy, it remains to be seen how fleet operators will respond to what could be double-digit price increases in 2022.

When I last wrote about PACCAR (roughly a year ago), I wasn’t excited about the potential and I said it was a name to reconsider on a meaningful pullback. The shares then declined about 15% through the fall before beginning a rebound that has brought the shares back to where they were at the time of that last article.

I’m more bullish than a year ago, but not bullish enough to want to own the shares here, as the Street is still concerned about peaking orders and the ongoing impact of component shortages and input cost inflation. I think fair value is in the high $90’s to low 100%’s ($97 to $102), but I would like either a wider margin of safety (a share price in the $80’s) or a little more visibility on the 2023 book before getting more bullish.

 

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PACCAR A Battleground Between Strong Demand And Concerns About Margins And A Near-Term Peak